How does competition ensure that the efficient product mix is ...

[mspears3]

How does competition ensure that the efficient product mix is attained?
 
  What will be an ideal response?

Question 2

The long-run average cost curve may initially slope downward due to
 
  A) decreasing average fixed costs.
  B) increasing marginal returns.
  C) economies of scale.
  D) All of the above.

[canderson530]

Answer to Question 1

In a competitive market, producers choose an output level where marginal cost equals price. Thus, Px/Py = MCx/MCy. Each consumer maximizes her own utility subject to the given prices by setting MUx/MUy = px/py. Even though each is acting independently and in her own interest, the final outcome is that px/py = MRS = MRT, which is the condition for efficient product mix.

Answer to Question 2

C